Date: June 20, 2013





U.S. Tax Code Has Minimal Effect on Carbon Dioxide and Other Greenhouse Gas Emissions, Report Says


WASHINGTON -- Current federal tax provisions have minimal net effect on greenhouse gas emissions, according to a new report from the National Research Council.  The report found that several existing tax subsidies have unexpected effects, and others yield little reduction in greenhouse gas emissions per dollar of revenue loss. 


At the request of Congress, a Research Council committee was formed to evaluate the most important tax provisions that affect carbon dioxide and other greenhouse gas emissions and to estimate the magnitude of the effects.  The report considers both energy-related provisions -- such as transportation fuel taxes, oil and gas depletion allowances, subsidies for ethanol, and tax credits for renewable energy -- as well as broad-based provisions that may have indirect effects on emissions, such as those for employer-provided health insurance, owner-occupied housing, and incentives for investment in machinery.


Using energy economic models based on the 2011 U.S. tax code, the committee found that the combined effect of energy-related tax subsidies on greenhouse gas emissions is minimal and could be negative or positive.  It noted that estimating the precise impact of the provisions is difficult because of the complexities of the tax code and regulatory environment.  However, it found that these provisions achieve very little greenhouse gas reductions at substantial cost; the U.S. Department of the Treasury estimates that the combined federal revenue losses from energy-sector tax subsidies in 2011 and 2012 totaled $48 billion.  While few of these provisions were created solely to reduce greenhouse gas emissions, they are a poor tool for doing so, the report says.


The models indicate that the provisions subsidizing renewable electricity reduce greenhouse gas emissions, while those for ethanol and other biofuels may have slightly increased greenhouse gas emissions.  They also suggest that broad-based provisions such as tax incentives to increase investment in machinery affect emissions primarily through their effect on national economic output.  In other words, when a broad-based tax provision is removed, the percent change in emissions is likely to be close to the percent change in national output.


In addition, the committee examined the broader implications of tax provisions and climate change policy and concluded that tax policies can make a substantial contribution to meeting the nation's climate change objectives, but the current approaches will not accomplish that.  While the report does not make any recommendations about specific changes to the tax code, it says that policies that target emissions directly, such as carbon taxes or tradable emissions allowances, would be the most effective and efficient ways of reducing greenhouse gases.


The study was sponsored by the U.S. Department of the Treasury. The National Research Council is the principal operating arm of the National Academy of Sciences and the National Academy of Engineering. Together with the Institute of Medicine, these private, nonprofit institutions provide science, technology, and health policy advice under a congressional charter granted to NAS in 1863. For more information, visit A committee roster follows.



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Division on Policy and Global Affairs

Board on Science, Technology, and Economic Policy


Committee on the Effects of Provisions in the Internal Revenue Code on Greenhouse Gas Emissions


William D. Nordhaus* (chair)
Sterling Professor of Economics
Yale University
New Haven, Conn.

Maureen L. Cropper*
Professor of Economics
University of Maryland
College Park

Francisco de la Chesnaye
Program Manager and Senior Economist
Electric Power Research Institute
Washington, D.C.

Noah Diffenbaugh
Center Fellow
Woods Institute for the Environment, and
Assistant Professor
School of Earth Sciences
Stanford University
Palo Alto, Calif.

David G. Hawkins
Director of Climate Programs
Natural Resources Defense Council
Washington, D.C.

Roberta F. Mann
Frank Nash Professor of Law
School of Law
University of Oregon

Brian C. Murray
Research Professor and Director of Economic Analysis
Nicholas Institute for Environmental Policy Solutions
Duke University
Durham, N.C.

John M. Reilly
Joint Program on the Science and Policy of Global Change, and
Senior Lecturer
Sloan School of Management
Massachusetts Institute of Technology


Drew Shindell
Senior Scientist
NASA Goddard Institute for Space Studies
New York City

Eric Toder
Institute Fellow
Urban Institute, and
Urban-Brookings Tax Policy Center
Washington, D.C.

Roberton C. Williams III
Associate Professor of Economics
University of Maryland
College Park

Catherine Wolfram
Flood Foundation Professor of Business Administration
Haas School of Business
University of Califonia




Stephen A. Merrill

Study Director



* Member, National Academy of Sciences